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There are four reasons why the stock market is poised to continue rising to record highs, says Goldman Sachs

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  • The US stock market will continue to recover from recent record highs, says John Flood of Goldman Sachs.

  • Market tailwinds and seasonality suggest more opportunities lie ahead, while bullish sentiment has not yet peaked.

  • Private investors often sell stocks to cover taxes, causing the market to slump on tax day with subsequent rebounds.

There is more fuel in the tank for this year’s stock market rally, according to a Goldman Sachs strategist.

John Flood, head of U.S. equity sales at Goldman’s global banking and markets division, said in a briefing Friday that investors worried about a stock market bubble can relax, as he believes the S&P 500 will continue to rise for four reasons to rise.

First, the strategist predicts a market rally in late April because, according to the historical pattern, investors traditionally take profits ahead of tax season, leading to a temporary sell-off before another rebound later in the month.

“Retail investors tend to sell stocks to pay their taxes – which means we often see the market crash into Tax Day and then bounce back,” he said.

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Secondly, he pointed out that listed companies remain important buyers of their own shares. In this case, the tight supply of shares will increase massive market demand, fueling an upcoming stock market rally.

“Corporate buyback bids remain robust. We anticipate a $925 billion buyback model this year,” he said, citing Goldman Sachs’ research.

Third, future confidence comes from money market funds, with massive inflows of $1.6 trillion since 2023. This indicates to Flood that “there is still plenty of dry powder” for investors to bet on the stock market.

Finally, Flood notes that current sentiment doesn’t scream “all-time bullish” yet, as hedge funds have seen money flow out recently. Peak bullishness is often a contrarian indicator that indicates the next move for stocks is likely to be down, but the market isn’t there yet.

“Hedge funds have been net sellers of stocks and have significantly increased their shorting activity in recent weeks,” he said.

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Read the original article on Business Insider

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